Communicating the Bu$ine$$ Case for $ustainability Strategies Business in the Community Plymouth, England April 12, 2007 Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com 1

The Sustainability “3-Legged Stool” Sustainable Development (SD) = Sustainability Corporate Social Responsibility (CSR) = Triple Bottom Line (TBL) Corporate Responsibility (CR) = = = Environmental, Social, Governance (ESG) Economy / Profits Sustainable business Profits Taxes, R&D Jobs Expenditures Training Fair trade Core values Environment / Planet Eco-Efficiency Manufacturing efficiencies Operations efficiencies Product efficiencies Smart design Cradle-to-cradle, take-back Beyond compliance Restorative to nature Equity / People Ethical business Internal Employees Human Rights Health & Safety Respect, Caring Local Community & Culture Rest of the World 1

The Smart Business “3-Legged Stool” Asset Management Financial Capital Manufactured Natural Capital Human Capital Social 1

5 Stages and Emerging Drivers 5. Purpose / Passion ------------------------------- 4. Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance Passionate Founder / CEO P r o a c t I v e Business Opportunities – “Carrots” Risk Management – “Sticks” Eco-efficiencies Regulatory Threat PR Crisis R e a c t I v e Regulatory Pressure / Enforcement 1

Ends vs. Means Stage 5: Purpose / Values ------------------------------------------------------------------------- Stage 5: Purpose / Values We want to be a successful business … so that … we can contribute to environmental and social well-being Means End Stage 4: Integrated Strategy We want to contribute to environmental and social well-being … so that … we can be a successful business Means End 1

5 Stages and Emerging Drivers 5. Purpose / Passion ------------------------------- 4. Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance Passionate Founder / CEO P r o a c t I v e Business Opportunities – “Carrots” Risk Management – “Sticks” Eco-efficiencies Regulatory Threat PR Crisis R e a c t I v e Regulatory Pressure / Enforcement 1

Tangibles Company Value The Company Value Iceberg Tangibles / Financials / Balance Sheet Intangibles / Brand Image / Nonfinancials / Reputation / / Stakeholder Relationships Company Value 1

Tangibles / Financials Intangibles / Nonfinancials The Company Value Iceberg: 1981 Tangibles / Financials 83% Intangibles / Nonfinancials 17% Company Value Arthur D. Little, The Business Case for Corporate Citizenship , 2002) 1

Tangibles / Financials Intangibles / Nonfinancials The Company Value Iceberg: 1998 Tangibles / Financials 29% Intangibles / Nonfinancials 71% Company Value Arthur D. Little, The Business Case for Corporate Citizenship , 2002) 1

Non-financials / Reputation The Sea of Demanding Stakeholders Financials NGOs / Civil Society Shareholders & Investors Employees Mainstream Media Global Markets / EU Non-financials / Reputation Awakened Public Banks & Insurers Customers Company Value Economists Competitors Governments at all levels Scientists 1

Non-financials / Reputation Two-part Business Case OPPORTUNITIES Financials NGOs / Civil Society Shareholders & Investors RISKS Employees Mainstream Media Global Markets / EU Non-financials / Reputation Awakened Public Banks & Insurers Customers Company Value Economists Competitors Governments at all levels Scientists 1

The Perfect Storm Oct. 27 – Nov. 1, 1991 Worst storm in history …100’ waves Cold front from Great Lakes The Perfect Storm (Former) Hurricane Grace Warm front near Sable Island All were dying out Energy from the 3 systems combined Sudden, unexpected, devastating 1

Mega-Issues + Stakeholders = New Market Forces Climate Crisis Climate Crisis Pollution & Health Climate Crisis Other … Energy Crisis Water Crisis Erosion of Trust Pandemics Financials NGOs / Civil Society Shareholders & Investors Employees Mainstream Media Global Markets / EU Non-financials Awakened Public Banks & Insurers Customers Company Value Economists Competitors Governments at all levels Scientists 1

Mainstream Media / Awakened Public The “Goracle” Factor + Hurricane Katrina + High gas prices + Weird weather + IPCC report + Stern Review + … 67% of Canadians say would switch to “green” companies (Environics, Feb 07) 79% of Americans say they are Conscious Consumers; 20% are Advocates vs. 7% in 2004 (Egg, Mar 07) 18% of global consumers are Mainstream Activists (Globescan CSR Monitor, 2005) 1

Economists’ Warnings about Risks Economists’ Statement on Climate Change (Feb 1997) Signed by 2,000 economists, including 6 Nobel Laureates Humans causing CC; it presents significant environmental, economic, social, and geopolitical risks; preventive steps justified Benefits to economy outweigh the costs Market-based mechanisms are most efficient way to slow CC: international cap-and-trade system and carbon taxes (“Great Green Tax Shift”) Stern Review on Climate Change (Oct 06) By former World Bank chief economist Nicholas Stern Humans causing CC; cost of mitigation is 1% of annual global GDP by 2050 if act now; 5-20% of annual GDP if act later Benefits of $2.5T if act now; global depression if do not Stabilize GHGs; deployment low-carbon technologies; remove barriers to energy efficiency; implement regulations, carbon taxes, and / or a cap-and-trade system 1

Investors Worried about Risks Carbon Disclosure Project 2003 2006 Institutional Investors 35 225 Value of Assets Held $4.5T $31T Companies Surveyed FT500 1,800 Manufacturer impact: -40%; Bank impact: -29% Climate Crisis Physical Risks Litigation Risks Competitive Risks Reputation Risks Investor Network on Climate Risk (INCR): 65 institutional investors, $4T in assets; Ask SEC to require listed companies to disclose CC risks to their financial performance (June 06); Climate Watch List of worst 10 companies get shareholder resolutions on CC (Feb 07); Request Congress cut GHGs 60-90% below 1990 levels by 2050 (Mar 07) Investors 1

Banks and Investors Taking Action Citigroup: largest U.S. bank; (Jan 06) will reduce GHGs from its 13,000 properties by 10% by 2011 Bank of America: second largest U.S. bank; (Apr 05) $3K rebates on employee hybrids; (Mar 07) $20B over 10 years to support growth in environmentally friendly activities and reduce global warming; reduced mortgage rates on energy efficient homes Goldman Sachs: (Nov 06) first major investment bank to adopt a comprehensive environmental policy; investing $1B in clean energy projects JP Morgan Chase: (Apr 05) adopted Equator Principles 348 shareholder resolutions on ESG issues 2005 (up 16% from 2003); 177 social resolutions reached a vote (up 22% from 2003) 1

EU Market Forces Pollution & Health Climate Crisis Regulations Restriction on Hazardous Substances (RoHS) Waste from Electrical and Electronic Equipment (WEEE) End of Life Vehicles Directive (ELVD) Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Energy-using Products (EuP) Climate Change Plan: (Mar 07) By 2020, cut CO2 by 20% below 1990 level; 20% of electricity from renewable sources vs. 6% now; 10% of vehicles on biofuels Big Retailers: Tesco, Marks & Spencer, Asda Climate Crisis Regulations Market Access EU Market 1

US Position on Climate Change? 20 States: Renewable energy targets 9 States: Suing Feds for lax fuel efficiency standards 5 West-coast States: Western Regional Climate Action Initiative 7 East-coast States: Regional Greenhouse Gas Initiative (RGGI) 33 States: Climate Registry of baselines 425 US Cities: Climate Protection Agreement: Kyoto at city level; -7% Big Corporations: Wal-Mart, GE, DuPont Combat Climate Change (3C) Initiative: 18 US energy corps; want carbon trading US Climate Action Partnership (USCAP): 10 major corps + 4 NGOs; want cap-and-trade and 15% GHG reduction in 15 years Climate Crisis Energy Crisis Regulations Carbon caps US States US Cities Corporations 1

Unusual Co-drivers of Sustainability National Security Alternative energy: Investment in the US projected to be $6B by 2008; $167B by 2015 Sustainability reputation: 70% of NA grads would not apply to company with a poor CSR reputation War for Talent Carbon trading: $29.8 B global market in 2006 and set to double in 2007; Opportunity for additional revenue? Revenue Pressure Environmental reporting: Sarbanes Oxley requires material risks be identified; CICA guidance on MD&A discussion of risks; GRI guidelines; 64% of Global 250 do SD reports Transparency 1

Non-financials / Reputation Two-part Business Case OPPORTUNITIES Financials NGOs / Civil Society Shareholders & Investors RISKS Employees Mainstream Media Global Markets / EU Non-financials / Reputation Social Licence to Operate Awakened Public Banks & Insurers Customers Company Value Economists Competitors Governments at all levels Scientists 1

Business Priorities Revenue Governance Brand Image Productivity New Markets Complying with New Regulations Profit Attracting & Retaining Top Talent Share Price Growth Attracting & Retaining Customers Leadership Motivation Innovation Managing Risks Competitive Advantage Market Share Speed to Market Responding to Emerging Market Forces Expense Savings 1

Benefits to “SME Ltd.” Potential profit increase: 66% Revenue: $4,000,000 Profit: $200,000 (5% of Revenue) Workforce: 50 (43 + 7 Managers) Avg. Employee Salary: $25,000 Avg. Manager Salary: $55,000 Potential profit increase: 66% + Energized employees + Improved corporate image + Competitive advantage + Positioned for the future 1

The Catch 1. Show senior leadership 2. Educate the whole company Include SD in vision / mission / strategies Reinforce it is a business strategy vs. a compliance or philanthropy issue Avoid “green-washing” hype Visible support: speeches, questions, actions 2. Educate the whole company Solicit employee ideas 3. Align with measurement systems Align with measurement / management systems Integrate into recognition / reward systems 1

6 Benefit Areas Usual focus Reduced electricity, fuel, and waste costs Reduced recruiting costs Reduced attrition costs Increased employee productivity Increased revenue / market share Reduced risk, easier financing 1

6 Benefit Areas … % Improvement Reduced electricity, fuel, and waste costs -10% Reduced recruiting costs -1% Reduced attrition costs -2% Increased employee productivity +6% Increased revenue / market share +5% Reduced risk, easier financing -5% … yielding a profit increase of +66% 1

What if … Reduced electricity, fuel, and waste costs -10% Reduced recruiting costs -1% Reduced attrition costs -2% Increased employee productivity +6% Increased revenue / market share +5% Reduced risk, easier financing -5% +3% … yielding a profit increase of +66% +48% 1

What if … Reduced electricity, fuel, and waste costs -10% -5% Reduced recruiting costs -1% Reduced attrition costs -2% Increased employee productivity +6% Increased revenue / market share +5% Reduced risk, easier financing -5% -5% … yielding a profit increase of +66% +56% 1

What if … Reduced electricity, fuel, and waste costs -10% Reduced recruiting costs -1% Reduced attrition costs -2% Increased employee productivity +6% Increased revenue / market share +5% Reduced risk, easier financing -5% +2.5% … yielding a profit increase of +66% +64% 1

What if … Reduced electricity, fuel, and waste costs -10% -5% Reduced recruiting costs -1% Reduced attrition costs -2% Increased employee productivity +6% Increased revenue / market share +5% Reduced risk, easier financing -5% -5% +3% +2.5% … yielding a profit increase of +66% +35% 1

Tipping Point? 5. Purpose / Passion ------------------------------- 4. Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance 20% at Stage 4 or 5 Passionate Founder / CEO P r o a c t I v e Business Opportunities – “Carrots” Risk Management – “Sticks” Eco-efficiencies Regulatory Threat PR Crisis R e a c t I v e Regulatory Pressure / Enforcement 1

Sustainability is smart business New market forces / risks are in play Closing Thoughts Sustainability is smart business New market forces / risks are in play Public expectations are rising Talk their language Show relevance to existing priorities You are not alone; find partners Opportunity for leadership 1

Communicating the Bu$ine$$ Case for $ustainability Strategies Business in the Community Plymouth, England April 12, 2007 Bob Willard bobwillard@sympatico.ca www.sustainabilityadvantage.com 1